Ladies and gentlemen, thank you for standing by, and welcome to the FuelCell Energy's Q1, 2021 Earnings Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session [Operator Instructions] I would now like to hand the conference over to your speaker today, Tom Gelston, Senior Vice President of Investor Relations. Thank you. Please go ahead, sir.

Thank you, Julien. Good morning, and thank you for joining us on today’s call. As a reminder, this call is being recorded. This morning, FuelCell Energy released our financial results for the first quarter of fiscal year 2021, and the earnings press release is available on the Investor Relations section of our website at fuelcellenergy.com. Consistent with our practice, in addition to this call and our press release, we have posted a slide presentation on our website. This webcast is being recorded and will be available for replay on the company’s website approximately two hours after we conclude the call. Before we begin our prepared comments, please direct your attention to the disclosure statement on Slide 2 of the presentation, and the disclaimers included in the press release related to forward-looking statements. The discussion today will contain forward-looking statements, including without limitation, statements with respect to the company’s anticipated financial results, and statements regarding the company’s plans and expectations regarding the continuing development, commercialization and financing of its FuelCell technology and its business plans. These forward-looking statements are intended to qualify for the Safe Harbor from the liability established by the Private Securities Litigation Reform Act of 1995. All statements made on this call today other than statements of historical facts are forward-looking statements and include statements regarding our anticipated financial and operational performance. Forward-looking statements made on this call represent management’s current expectations and are based on information available at the time such statements are made. Forward-looking statements involve numerous known and unknown risks, uncertainties and other factors that may cause our actual results to differ materially from any results predicted, assumed, or implied by the forward-looking statements. We strongly encourage you to review the information in the reports we filed with the SEC regarding these risks and uncertainties, in particular, those that are described in the Risk Factors statements of our Annual Report on Form 10-K and cautionary statements concerning forward-looking statements disclosed in our quarterly reports on Form 10-Q. You should also review the section entitled Cautionary Statements concerning forward-looking statements in this morning’s earnings press release. During this call, we will use non-GAAP financial measures when talking about the company’s performance and financial condition. And accordance with SEC regulations, you can find a reconciliation of these non-GAAP measures to the comparable GAAP measures in this morning’s earnings press release, and the reconciliation document posted on the Investor Relations portion of our website. On our call today, I’m joined by Jason Few, FuelCell Energy’s President and Chief Executive Officer; and Mike Bishop, Executive Vice President and Chief Financial Officer and Treasurer. Following our prepared remarks, we will be available to take your questions and be joined by other members of the leadership team. With that, I'll now hand the call over to Jason for opening remarks. Jason?

Thank you, Tom, and good morning, everyone. Thanks for joining us on our call today. Each quarter, we include a brief overview of the company shown on Slide 3 for new investors. Taking a look at the full year fiscal 2020, which ended on October 31, our total revenue grew by double digits to approximately $71 million. Our three largest categories, servicing licenses, advanced technologies and generation, represent diversified sources of recurring revenue under multiyear contracts with investment grade customers. Consistent with our strategy, in future quarters we expect the work we have done to rebuild our business development and go to market capabilities, recruit an on board strategic talent and reenter and build client relationships and target global markets to yield growth, including product sales. Consistent with our prior experience in certain markets such as Korea, the largest FuelCell market in the world, select countries across Europe and other international markets, we expect some customers to choose to purchase our platform bundled with long-term service contracts that run coterminous with platforms like should our marketing efforts be successful. We are optimistic about the momentum behind the global energy transition that we expect to be enabled by distributed generation, distributed hydrogen, long duration hydrogen energy storage and carbon capture. At the top of the slide, we highlight many of our customers currently utilizing our multi feature FuelCell platforms. Many of these systems integrate combining our capabilities, creating very high energy efficiency levels, while others, installations form the backbone of microgrids enhancing resiliency and reliability, and/or utilize biofuel resulting in carbon neutral to carbon negative power. Our platforms also have the ability to leverage multiple fuel types, a feature many customers are interested in. In addition, our carbonate fuel cell platform has the ability to deliver hydrogen through our Trigen platform.…

Thank you, Jason. Let's begin by reviewing financial highlights for the quarter, shown on Slide 7. In the first quarter of fiscal year 2021, we delivered $14.9 million in total revenue, a 9% decline compared to the first quarter of fiscal year 2020. The primary driver of the decrease was that the first quarter of fiscal year 2020, included $4 million of non-recurring licensed revenues associated with our Joint Development Agreement, or JDA, with ExxonMobil Research and Engineering Company or EMRE, related to carbon capture technology development. Looking at revenue drivers by category, service and license revenues decreased 12% to $4.9 million from $5.6 million in the prior year period. Revenue recognized in the first quarter primarily includes revenue recorded for module replacements and routine maintenance activities, whereas revenue recognized in the first quarter of fiscal year 2020, included non-recurring license revenues of $4 million, associated with our JDA with EMRE, and $1.6 million associated with routine monitoring and maintenance activities for projects under service agreements. Generation revenues decreased 10% to $4.9 million due to a temporary shutdown of several of the individual plants at the Bridgeport Fuel Cell project, for scheduled module exchanges in the quarter. Advanced technology contract revenues decreased 3% to $5.1 million from $5.2 million, compared to the first quarter of fiscal year 2020, advanced technology contract revenues recognized under the JDA with EMRE were approximately $300,000 higher during the first quarter of fiscal year 2021, reflecting continued advancement of our joint research with EMRE on fuel cell carbon capture solutions during the quarter. The increased revenues under the JDA were offset by $400,000 of less revenue, recognized under government contracts in the first quarter of fiscal year 2021, compared to the first fiscal quarter of fiscal year 2020. Gross loss for the first quarter of…

Thanks, Mike. As mentioned previously, we are near completion of two new power platforms, one at the U.S. Navy base in Groton, Connecticut, and one zero-carbon biofuel platform at the Wastewater Treatment Facility in San Bernardino, California. Our SureSource 1500, and SureSource 3000 power platforms are the only fuel cell system, certified to carbon emission standards under the distributed generation certification program for operations with onsite biogas. We also began early stage construction of 24.5 megawatts of projects including, the Toyota Hydrogen project at the Port of Long Beach, and utility scale projects in Yaphank, on Long Island in New York and Derby Connecticut. We are also advancing the development of new technologies including, operating and testing a prototype solid oxide electrolysis hydrogen platform in Danbury, Connecticut, and continue to advance our joint research with EMRE on fuel cell carbon capture solutions. Turning to Slide 11, I want to take a moment to highlight the strong resiliency characteristics of our SureSource platform. As I mentioned earlier, recent headlines in Texas surrounding extreme weather, as well as continued challenges for grid reliability in markets, such as California, or an extreme freeze increase in the UK in February, continue to expose the inherent challenges of a long distance transmission based grid. In cities across America, governments and utilities alike are hopeful any infrastructure package contemplated by Congress in the new administration will include funding to upgrade today's grid, with reliable distributed megawatt scale power platforms. Our platforms not only run 24/7, 365, but have demonstrated their performance stability during some of nature's more extreme conditions. Highlighted on the chart to the left are numerous examples where our SureSource platforms operated seamlessly, in prolonged instances of extreme temperatures, providing universities, industry, critical resources and the broader utility grid with reliable power. On the…

Thank you. [Operator Instructions] Your first question will come from Jeff Osborne from Cowen and Company. Please go ahead. Your line is open.

Good morning, guys. I was wondering if you could flush out a little bit more detail on the solid oxide electrolysis opportunity that you're testing in Danbury. I wasn't sure what the next steps are. And then how we think about the timeline to commercialization and when you can start participating in RFPs for that fully recognize or some incremental steps that need to be taken from here. But I was just wondering if we could sort of book in that on how long it will take?

Jeff, great. Good to have you on the call today, and thanks for joining. Great question. Maybe I'll start and then I'll ask Tony Leo, our Chief Technology Officer, to also chime in. So, with this test, we will lead to the next phase of actually executing the test with INL, will be the next phase of our process to get to commercialization. But as we think about the opportunity to your question of participate in RFPs, given where we are and where some of these RFPs, or at least projects that people are talking about are kind of longer dated projects. We will participate in some of those opportunities, if those timelines that our internal projections about when our product will be commercial. But, Tony, if you have anything else to add to the phases.

Yes, I’ll just add, the test we're doing now is with a single stack subscale system, and we’re developing the basic operational approaches, building into the logic of the multi stack system that we’re building right now later this year. So the stepwise process and we're happy with where we are right now.

Jeff, I’ll just say, we're really excited about the test we're running here and the results that we're seeing. And, we feel good about our progress.

It's great to hear. Thanks so much.

Thank you.

Your next question comes from Laurence Alexander from Jefferies. Please, go ahead. Your line is open.

Good morning. Can you characterize the amount that your bidding activity has changed over the last three or six months? And what your kind of bandwidth for new projects is, like what would be kind of the point at which you would say you're stretching your limits?

Laurence, good morning. How are you? Thanks for joining the call this morning. If a bidding activity, if you mean by that the amount of activity we're participating in, in terms of proposals or submitting proposals or responding RFPs, I would say over the last six months has increased fairly significantly for us. I mean, the sales cycle generally, given our megawatt class platforms, generally take between 12 to 18-months as a sales cycle. But we've seen a lot of increased activity, not only here domestically, but in the international markets that we're focused on. And so, as I think about it and look at the pipeline, and as we go through our phases in the pipeline from engaging a customer, ultimately to submitting a proposal, I think we're making a lot of progress there. And I'm feel good about the pipeline. And I feel good about the number of opportunities we have in the proposal phase. With respect to the number of projects that we could pursue, if you think about what we do in terms of our carbonate platform as we talked about, and maybe I'll let Mike Lisowski to a little bit in terms of how we're ramping our manufacturing capacity to meet the demand that we see. But, the things that we're doing in regards to some of our European opportunities, we have our facility in Germany, which also gives us some capacity. And then the work that we're doing on solid oxide, that work is done between our facility in Calgary and our facility here in Danbury. So, those projects aren't really competing against our capabilities to produce our carbonate platform and meet the opportunities that we've responded to from an RFP or proposal standpoint. Mike, do you want to talk about where we are in terms of production?

Jason, thank you. And Lawrence, thank you for your questions. So relative to support the backlog and future business growth, we are really well-positioned holistically across the business, both from a supply chain perspective and continuity and supply of materials, from a labor and talent position, as well as production capacity. We've been working very hard across our teams, and thoughtfully adding strategic capacity and locations across our factory where they're needed, working to establish enhanced yield, and continue to expand the throughput. So, we're feeling very confident about where we're positioned today, and where we're headed for future business growth.

And I would just add, Laurence, in our factory, we have expandable capacity in our factory. We also have the ability to add additional shifts. So, we feel really good about our ability to meet demand.

Thank you.

Thank you.

Your next question comes from Colin Rusch from Oppenheimer. Please go ahead. Your line is open.

Thanks so much, guys, and well done on hitting the balance sheet and restructured. It sounds like you've got a number of important technology programs underway and partnerships. It looks like you may need to be spending a bit more on R&D. So, wondering if you could talk a little bit about how that spend is expected to trend and the skills that you might need to add to the team?

Yes. Colin, good morning. Thank you. I will ask Mike Bishop to comment on that, with respect to the increased capital that we're putting toward, or support commercialization of these technologies. And, I'll just maybe speak to the skill set, and maybe Tony could add to as well. We feel really good about the technical resources we have on our team across engineering to support our R&D efforts. And that's inclusive of the work that we're doing with respect to carbon capture with EMRE from the Exxon research effort that we have going on. But Mike, you want to talk a little bit about how we're allocating additional capital?

Yes. Good morning, Colin. Thanks for joining the call. So, what we put out there, when we put our 10-K out was, we do expect to see higher -- on the OpEx side, we do expect to see higher R&D spending around distributed hydrogen and long duration hydrogen storage. Last year, we reported about $4.8 million of R&D expense, we're forecasting between $18 million to $20 million of R&D expense from a CapEx perspective this year, and adding manufacturing equipment and lab equipment, were forecasted to be in the range of $5 million to $10 million of CapEx.

All right. That's super helpful. And then just as a follow up. As you build up the project pipeline, there's been a tight labor market, we've seen an increase in commodity prices. Can you just talk a little bit about any potential extension on timelines to completing construction? And any sort of CapEx adjustments that you might need to make, given some of those labor and commodity prices?

Colin, we're not seeing any impact from a labor standpoint, relative to the construction side of our in-flight projects. And we're not really forecasting an impact there. It’s something that we continue to monitor. Mike Lisowski is on top of that manages that, very, very tightly. We also aren't seeing any impacts in terms of material supply to the company and our ability to manufacturer product in order to meet the demand that we have for in-flight project. So we're not having that experience today as a company.

That's super helpful. Thanks, guys.

Thank you.

Your next question comes from Jed Dorsheimer from Canaccord Genuity. Please go ahead. Your line is open.

Yes. A question and follow-up. So, I guess, on my question, if I look at the -- maybe this is a Tony or Jason question. So, if I look at the Trigen, in adding the capture, how should we think about this in terms of reduction of efficiency by adding that additional capture methodology in that to go from gray to blue?

So, if you think about Trigen, if you count the energy value of hydrogen reproducer efficiency actually goes up, it's quite high. Now if you add, and of course, for our Long Beach project, we're using directed biogas. So, that's zero-carbon to begin with. If you're using natural gas and add carbon capture, you will obviously, you'll have to power that carbon capture equipment to some extent. So, our 2.8 megawatt system in Trigen mode is 2.3 megawatts, you would probably go down to something like 2.1 with carbon capture.

That's really helpful.

Yes. Jed and Tony, just to clarify that I think what you're powering there is really like compression to liquefy the Co2. It's not a carbon capture equipment, it's the extra equipment, you need to liquefy the carbon.

Great. And just as a follow-up, operationally, I guess, I'm assuming that there's a point in terms of showing the progress and highlighting the Groton sub-base, which seems like it's progressing nicely. So congrats on that. I guess I just want to understand, the conversion from backlog into the recognition of those revenues, and kind of that switch into the portfolio. So maybe if you could just, and maybe I missed it, but if you could articulate time expectations in terms of what needs to occur for completion and RevRec on that project, that would be helpful. Thanks.

Yes. So, maybe I'll start and then Mike Lisowski and Mike Bishop can chime in. Just in terms of where we are in the process, as I indicated in my remarks, we are materially complete with our portion of the work with the exception of getting the interconnection done, and some other safety work that has to happen. So, we haven't given an exact date, simply because the interconnection agreement, like I indicated its being managed by a third-party. But maybe I'll ask Mike Lisowski to speak to that a little bit. But then from the point of getting the interconnect, and that's going COD, is when we would start to generate revenue from that asset for the company. But Mike, do you want to talk about the other one?

Jed, thank you for your question. Just to provide a little bit more color around the project, yes, despite some challenges, I'm really, really proud of the team and all the progress that's been realized in reaching our current advanced division project execution at the Groton site. As Jason has mentioned, all of the sites civil construction has been completed, all of the required equipment and materials and fabricated and filled delivered to the site. All the mechanical assembly construction is complete at this point, with the majority of the electrical installation completed as well. Right now we're in the process of discrete equipment checkout and safety related work, as part of the commissioning process. And once we complete that plant commissioning process, we'll be well-positioned to export power once the interconnect is executed and finalized. And as Jason mentioned, that's the point at which you would convert into revenue generating asset.

And Jed, this is Mike bishop. I'll add one more point on the revenue side. And as I was trying to highlight in my comments, our generation portfolio is the biggest portion of our revenue backlog. It's about $1.1 billion today. We have operating about 30 megawatts of operating assets. And as we said in our remarks, we're in the process of building out another 40 plus megawatts of assets. So if you think about that operating portfolio, last year, we generated about $20 million of annualized revenue. Well, we're more than doubling the operating portfolio here over the next period of time, as these projects come online, so they'll begin to make meaningful contributions to increasing our generation revenue as they come online.

Great. That's helpful, guys. Thank you.

Thank you.

Your next question comes from Paul Coster from JP Morgan. Please go ahead. Your line is open. Paul Coster, your line is open.

Maybe he dropped, so we can maybe got to the next caller.

Certainly, your next question comes from Noel Parks from Tuohy Brothers. Please go ahead. Your line is open.

Hey, good morning.

Good morning.

You know, I was thinking back to the Exxon JV. And Exxon in their Investor Day a couple of weeks ago talked a good bit about how central carbon capture was to their various green initiatives. And I was wondering if you could talk a little bit more about in the event, there are new technologies that you aren't directly involved in introducing to the JV, and for instance, on their call they mentioned some progress with material technology, as far as carbon capture from a gas stream. And I just wonder, those sorts of things, do you have some access to those? Or is there some provision in your agreement where you would be able to get access to other things that they in the course of the JV?

Yes. So, good morning. Let me try to start that, and then I'll ask Tony, maybe to chime in. So, as a company, we are and as the joint development agreement too, that we have in place with Exxon is very focused on our carbonate fuel cell technology. And what's compelling about the carbonate fuel cell technology, are some of the things I mentioned in my comments that, it's the only platform that we're aware of that has the ability to capture carbon from an external source, producing more power at the same time, and deliver hydrogen from that same platform. That is the focus of our work with Exxon, and we believe that those differentiating attributes creates a very compelling proposition for Exxon and for carbon capture overall. And Exxon has a research organization inside their company, and they look at various technologies, but we're very focused on optimizing our carbon and technology to deliver against that. And look, we also support the notion that in order to achieve the global sustainability goals, carbon capture has to be a part of that. And that the goal of reducing carbon or overall climate sustainability goals, should not deindustrialization. And a deindustrialization is not one of the goals, which I don't think it is, then that means carbon capture has to be an important part of the solution, in addition to doing things like fuel substitution, like hydrogen, for example. And so we think we're well-positioned to participate in all of those. And then, Tony, I don't know, if you have any additional comment relative to other technologies that Exxon is working on, but that would not relate to us?

Yes. For example, they're looking at direct air capture. That is a carbon capture approach that tried to solve the different problems than the problem of capturing Co2 from the flue gas or boilers or power plants. So, they've got a comprehensive approach. A lot of the stuff they're doing has no bearing on us whatsoever. And as Jason said, we're very focused on our particular approach to carbon capture, which Exxon obviously very interested in.

And I would just say if you look at other technologies, for example, just take direct air capture right, again, one of the significant differences we have versus direct air captures, direct air capture requires a lot of power to operate that technology, whereas we're additive to the power as opposed to being a parasitic on the power output. So.

Great. Thanks a lot.

Thank you.

Our last question will come from Eric Stine from Craig-Hallum. Please go ahead. Your line is open.

Yes. Good morning. It's Aaron Spychalla on for Eric. Thanks for taking the questions.

Hey, Aaron.

Hello. First on the generation segment, Mike, I think you talked about a little bit on the module exchanges. Can you just give us an update on kind of the margin outlook there? Is it still 50% plus as we start to move some of these projects into that bucket? And then maybe just an update on extending the stack life there as well?

Sure. Good morning, Aaron. Yes, so maybe I'll take the last one first. So the company has talked over the last several years about evolving the module life from five years to seven years. So any module exchange that we now do in the fleet has a seven year life. And obviously, extending stack life is a key tenant of our R&D activities. Specific to the generation portfolio and what I mentioned on Bridgeport, Bridgeport is a 15 megawatt project, multiple plants average pore. So over the last couple of quarters, we have been doing module exchanges there with the goal of obviously extending life, as I just mentioned, but also increasing output. You would expect as we go through these to see higher revenue coming from that project. Specific to EBITDA, we have said externally that we do target EBITDA margins from our overall generation portfolio in the 50% range. We have been below that the last couple of quarters that EBITDA percentage, I believe last quarter was in the 31%range. This quarter it's higher in the 44% range. And obviously with higher revenue and improved operating performance, we would expect that to increase over time.

Great. Thanks for taking the questions.

Thank you.

We have no further questions, I’d like to turn the call back over to Jason Few for closing remarks.

Julien, thank you very much. And thank you again for joining us today. We will continue to work to execute on our Powerhouse business strategy and deliver profitable growth and optimize returns. The FuelCell Energy team is excited about our work to deliver on our purpose to enable the world to live a life empowered by clean energy. And we are committed to delivering long-term shareholder value. And as someone who has spent most of his adult life in Texas, I want to offer my prayers and support to the families impacted by the recent winter storm. Thank you for joining, and have a great day.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.